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“There are also stories of Russians potentially cutting supply [of precious metal scraps and tailings] that is adding to a very bullish scenario.”

Currently, the trade and industry ministry of Russia, which is a top palladium-producing country, has begun contemplating a temporary ban on the export of precious metals scraps and tailings for a five-month period beginning on May 1 of this year.

Although many market watchers are speculating that automakers may soon trade the high-priced palladium for the much cheaperplatinum, as both metals are emissions-reducing catalysts in automobiles, this process would be considerably time consuming and inconvenient.

“Platinum cannot substitute directly in the same quantities. You would need significantly more, you would need to change the layout, [as] they respond differently to heat and the chemistry,” Jim Gallagher, CEO of North American Palladium (TSX:PDL,OTC Pink:PALDF),recently told the Investing News Network.

“The real fact is that the palladium market, which is not known by most people, is actually larger than the platinum market. So you would be shifting from a market that is already in deficit to a smaller supply base,” he added.

While Gallagher believes that palladium’s rally is not speculative and is solely based on supply and demand, many analysts are predicting that the precious metal isheaded for a bubble and that high prices are not sustainable.

“Palladium has entered into bubble territory,” Hansen said.

However, the Saxo Bank analyst added, “as long as we see no change in the outlook for tight supply or changing demand dynamics from consumers, the price could go higher.”

Moving forward, FocusEconomics analysts foresee a price correction for the precious metal this year, with the analysts stating, “prices are likely currently running ahead of fundamentals.”

“Softer global economic momentum could also feed into lower demand for the metal. However, palladium prices should remain elevated by historical standards, supported by the ongoing supply deficit, the shift away from diesel vehicles and tighter environmental regulations,” they said.

As of 11:03 a.m. EST on Wednesday (March 20), palladium was trading at US$1,579.